A bridged 9,10-dihydro-9-oxa-10-phosphaphenanthrene-10-oxide (DOPO) derivative (PN-DOPO) in combination with aluminum phosphates coated sepiolite (Sep@AlPO4) was used to improve the flame retardancy, thermal stability and mechanical properties of poly (ethylene oxide) (PEO)/poly (butylene adipate-co-terephthalate) (PBAT) blends. The synergistic effects of PN-DOPO and Sep@AlPO4 on the fire resistance, thermal decomposition behavior and mechanical properties of PEO/PBAT composites were investigated systematically. The results indicated that 5 wt % Sep@AlPO4 combined with 10 wt% PN-DOPO into PEO/PBAT achieved a V-1 rating in UL-94 test and the LOI value increased to 23.7%, meanwhile, the peak-heat release rate (p-HRR), av-HRR and total heat release (THR) values of PEO/PBAT/PN10%/Sep5% composites decreased by 35.6%, 11.0% and 23.0% compared with those of PEO/PBAT, respectively. The thermogravimetric analysis (TGA) results confirmed that PN-DOPO/Sep@AlPO4 could enhance the initial thermal stability and char yield of PEO/PBAT matrix, and TGA/Fourier transform infrared spectrometry (TGA-FTIR) results revealed that the composites exhibited the absorption peaks of phosphorous-containing groups and an increase in gas-phase volatiles during the thermal decomposition process. The digital photographs and morphological structures of char residues demonstrated that PN-DOPO and Sep@AlPO4 mixtures benefited to the formation of a more continuous and dense carbon layer on the composites surface during combustion. Rheological behavior revealed that a higher storage modulus, loss modulus and complex viscosity of PEO/PBAT/PN-DOPO/Sep@AlPO4 composites could also promote the cross-linking structure during burning. Furthermore, the PEO/PBAT/PN-DOPO/Sep@AlPO4 composites exhibited excellent mechanical properties in terms of elongation at break and flexural performance than the PEO/PBAT system. All the results demonstrated that PEO/PBAT system modified by the combination of PN-DOPO and Sep@AlPO4 not only exhibited excellent synergistic effect on the flame retardance, but also had good improvement on thermal stability and mechanical properties, indicating the potential application in areas requiring fire safety.